ABSTRACT: On April 11, 2012, media outlets exploded with the news that the Department of Justice had filed a civil antitrust case against Apple and five of the six largest publishing companies in the United States for illegally conspiring to fix eBook prices. The DOJ's complaint alleged that HarperCollins, Hachette, Macmillan, Penguin, and Simon & Schuster (the "Publishers"), along with Apple, conspired to raise prices by collectively adopting "agency" agreements to market eBooks. Under these new arrangements, the Publishers were able to set the price of their own eBooks and to eliminate pro-consumer discount pricing by Amazon, the then-leading eBook seller, at its Amazon.com website. Apple, the DOJ charged, participated in the conspiratorial activity when, in 2010, it entered agreements with the Publishers to distribute their eBooks through its newly created iBookstore for use with its iPad tablet computer.

Almost immediately after filing suit, the DOJ came under intense criticism. Many wondered whether the DOJ "got it right," as Amazon, the retail monolith with an enormous hold on the eBooks market, stood to gain from the government's lawsuit. Additionally, many assert that, by introducing the iPad, Apple sparked an explosion of innovation and competition in the eBook tech world. For instance, the advent of the iPad pushed the creative minds behind "eReaders" to develop devices with new and improved features such as color pictures, audio and video, and fixed display. These new features contrasted sharply with the black-and-white, "one-trick-pony" that Amazon's "Kindle" reader, introduced in 2007, represented. Shouldn't the government encourage this kind of ingenuity and product development, particularly in emerging markets? Perhaps it should-but certainly not if we have to sacrifice our antitrust laws as a result.

The DOJ, we believe, got it exactly right here. The government's 35-page complaint is rife with secret meetings at upscale New York eateries and communications between high-level Publisher executives. Writing to be "Twombly-compliant," the pleading, which reads like a pitch to a publishing house for a suspense novel, alleges serious anticompetitive misconduct. The DOJ details a price-fixing conspiracy that it could not responsibly ignore.

Thus, while the innovations of Apple and others over the past two years may reflect significant industry advances and offer considerable consumer benefits, still, the antitrust laws cannot be jettisoned to accomplish such goals. That's cheating, and it's illegal. The changes here may be innovative. But the antitrust law is textbook.

ABSTRACT: Cross-country variability in regulatory frameworks, industrial policy, physician/pharmacy autonomy, brand/generic distinctions, and in the practice of medicine contributes to ambiguous interpretations of pharmaceutical cost comparisons. Here we report cross-country comparisons that: (i) focus on 11 therapeutic classes experiencing patent expiration and loss of exclusivity 2004-2010 in eight industrialized countries; (ii) convert revenues and unit sales to cost per day of treatment and number patient days treated using the World Health Organizations’ Defined Daily Dosage metrics; (iii) compare patterns in costs per day of treatment with price index measures based on average price per day of treatment for each molecule computed over all molecule versions; (iv) utilizing econometric methods, model and quantify various factors affecting variations in daily treatment price indexes such as national regulatory and reimburseme! nt policy changes, physician/pharmacy autonomy, and other factors; and (v) simulate changes in expenditures by country and therapeutic class had counterfactual policies been implemented.

ABSTRACT: Price leadership is a concept that lacks precision. We propose a deliberately narrow, falsifiable, definition and illustrate its feasibility using the two leading British supermarket chains. We find both firms engaging in leadership behaviour over a range of products, with the larger being somewhat more dominant but the smaller increasing leadership activity over time. Surprisingly, more price leadership events are price reductions than price increases, but the increases are of larger monetary amounts (so average price increases over time) and the events appear not necessarily related to cost changes. Price leadership appears to play some role in price increases.

ABSTRACT: The DOJ's antitrust lawsuit against Apple and various book publishers, alleging an unlawful conspiracy to raise eBook prices,evoked a swift and visceral reaction online. Mac-o-philes the world over did a double take at their tablet screens and began posting furiously about the DOJ specifically and antitrust in general.

Two things became apparent.

One, most people have no idea what antitrust actually does. And the fault rests squarely on us, as antitrust practitioners. Antitrust is a terrible word. It starts with a negative prefix. Nearly half of it is spent preparing the listener for what it is not. Talk about it for too long, and people's eyes begin to glaze over, and excuses are made about refreshing one's drink or the lateness of the hour. Two, the people who like Apple really, really like Apple. While that's easy to mock, it's an incredible story to think about. By the late '90s, under the dial-a-Dell model, computers had become a commodity business. Apple went in the other direction, investing in style and making computers a premium product. Apple became expensive and chic, like Bang & Olufsen if Bang & Olufsen had targeted a demographics two generations younger.

Nor was Steve Jobs content with turning a handsome profit merely on the sale of computers; it was his vision to use his stylish showpiece consumer products to upend a variety of staid industries (which would, in turn, increase sales of said stylish showpiece consumer products). While it may be easy to dismiss some of the Mac-o-Philes' criticisms with the always-infuriating "oh, they just don't understand antitrust," they are entirely right about one thing: The model Apple sought to apply in the eBook industry is the same iTunes model it has applied elsewhere without challenge under the antitrust laws.

ABSTRACT: We show that collective bargaining can enhance retailers’ buying power vis-a-vis their suppliers. We consider a model of vertically related markets, in which an upstream leader faces a competitive fringe of less efficient suppliers and negotiates secretly with several firms that compete in a downstream market. We allow downstream firms to join forces in negotiating with suppliers, by creating a buyer group which selects suppliers on behalf of its members: each group member can then veto the upstream leader’s offer, in which case all group members turn to the fringe suppliers. Transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member; this, in turn enhances the group members’ bargaining position at the expense of the upstream leader. We also show that this additional buyer power can have an ambiguous impact on the upstream leader’s incentives to invest.

ABSTRACT: We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society.

ABSTRACT: In this paper, we investigate downstream firms' ability to collude in a repeated game of competition between supply chains. We demonstrate that downstream firms with buyer power can collude more easily in the output market if they also collude on their input supply contracts. More specifically, we show that an implicit agreement on input supply contracts with above-cost wholesale prices and negative fixed fees (that is, slotting fees) facilitates collusion on downstream prices. A ban on slotting fees decreases the scope for downstream collusion, as does a ban on information exchange about input supply contracts. We also show that high downstream prices are more difficult to sustain if upstream instead of downstream firms make contract offers.

Abstract: This paper provides an empirical examination of the relationship between competition and price discrimination in the parking garage industry. We find that the degree of price schedule curvature decreases with competition, implying a greater proportionate drop in low-end prices than in high-end prices when the competition intensifies. We explain this result in terms of differences between the searching behaviors of short- and long-term customers.

ABSTRACT: This paper studies the influence of information on entry choices in a competition with a controlled laboratory experiment. We investigate whether information provision attracts mainly high productivity individuals and reduces competition failure, where competition failure occurs when a subject loses the competition because the opponent holds a higher productivity. Information on the opponent is a promising nudge to raise individuals' awareness towards the complexity of the decision problem and to update beliefs about success. In the experiment, subjects face the choice between a competition game and a safe outside option. We analyze subjects' entry behavior with a benchmark treatment without information and three treatments, where we exogenously manipulate the information on the opponents. Our results are, (1) information on the productivity distribution of all potential opponents reduces competition failures by more than 50%, (2) information on the distribution is sufficient, i.e. precise information on the matched opponent's type does not further diminish failure rates.

ABSTRACT: Digital data is considered the basic currency of the information economy, while at the same time concern is growing that new technologies and business practices might represent serious and largely unprecedented threats to privacy. Earlier this year, there have been significant data protection initiatives on both sides of the Atlantic.

ABSTRACT: This article analyses the Commission's guidance and decisional practice in merger control cases involving the establishment or the change of the control structure of joint ventures. The analysis shows that the Commission's guidance and decisional practice are at best inconsistent as to when full-functionality is required for such cases to be subject to the EU Merger Control Regulation (EUMR). This article argues for legal certainty and a clear test that is consistent with the wording of the EUMR and the overall purpose of merger control.

ABSTRACT: When luxury purchases signal buyers' incomes, a monopoly provider of the luxury good can deliver the signals with greater efficiency than competitive providers. Specifically, if new entrants are permitted to sell counterfeit goods at competitive prices, the effectiveness of signalling will be unchanged but the quantity of goods purchased will increase, thereby increasing costs. We also show there is a trade-off among the goods that can serve as income signals: the goods that signal efficiently display a large gap between between marginal cost and the price a monopoly charges, but the same goods offer the greatest rewards to counterfeiting. When agents signal using the quality rather than the quantity of the good they buy, a monopolist may decide to offer a narrow menu of qualities that forces consumers to pool. Pooling can be welfare-enhancing in this case but it will lead to inefficiently high costs.

ABSTRACT: Although they have received the lion’s share of the limelight in recent years, it is not just “trolls” shaping the patent landscape today; “giants” and “dwarves” are in the thicket as well. The "trolls" are the patent holders that do not practice their patents, but instead seek to profit from litigation them; the "giants" are the large, multinational firms with both extensive patent portfolios and products practicing them; the "dwarves" are firms with a large presence in one market but are entering another market for which they have few or no relevant patents. This article provides a survey of key patent-related events taking place in 2011 and takes stock of the current patent acquisition and litigation landscape. Specifically, this article reviews the empirical literature on patent assertion entities, assesses the patent auctions that were held throughout 2011 and over which the giants and dwarves battled fiercely, and surveys the numerous patent infringement lawsuits currently underway, cases which include troll, giant, and dwarf plaintiffs.

ABSTRACT: Probably not. Or, at least, it is a sui generis two-sided market. Unlike other platforms, such as credit cards, night clubs, or operating systems, where a single transaction is performed via the platform (trade, date or using a PC), two different transactions take place on Google. Users look for search results, while advertisers look for users' eyeballs. Whilst credit cards, night clubs and operating systems would be meaningless if either of the two sides were missing, search engines (like TV or newspapers) can exist under different market configurations. Indeed, in search engines network externalities run only from the number of users to advertisers, and not the other way around. This thesis is supported by the analysis of the existing literature on two-sided markets and the applications carried out so far to the economics of search engines.

Accordingly to this analysis, a new construction of the relevant market where Google operates is proposed. Google operates as a retailer of eyeballs, or users' attention. In the upstream market, on one side, it buys well-profiled eyeballs from large retailers, i.e. major websites, at a positive price (Traffic Acquisition Costs); on the other side, it buys eyeballs from single consumers in exchange of search services (in-kind payment). Then, it sells well-profiled eyeballs to advertisers in the downstream market. Based on this market construction, the allegations against Google are analysed as alleged violations of the antitrust law along this vertical chain.

CPI would like to extend an invitation to a live webinar, "Antitrustand Regulation: Credit Rating Agencies," taking place on Thursday, June21, at 11:30 AM EST. CPI President Elisa Mariscal will moderate thepresentation by Professor Lawrence White(NYU Stern School of Business) and Dr. RosaAbrantes-Metz (Global Economics Group, NYU Stern School ofBusiness).

The panel will review the role of credit rating agencies (CRAs) in thefinancial crisis and their performance in structured finance, discuss theproblems with this market, and propose some solutions. In particular, ourexpert panelists will ask whether CRAs have become “too important” to thefinancial markets and regulatory systems, and how policy should address thisconcern. The presentations will include a discussion of the “issuer pays” modeland its possible alternatives, and focus on whether policy should encouragemore competition in this market.

This series will be presented over CPI’s Global Learning Platform whichdelivers lectures globally in real time. The only technology required is acomputer with a flash player and a telephone. Registration is free. Email contact@competitionpolicyinternational.comby Tuesday, June 19 to reserve your seat.